Lost Opportunity

CEYLON TODAY | Published: 2:00 AM Sep 25 2020

When Sri Lanka opened up its economy in 1977, its three top foreign exchange (FX) earners were tea, rubber and coconut.

Post-1977, these were replaced by remittances, garments and tourism with tea being relegated to fourth place, while rubber and coconut has fallen further behind, with rubber and rubber products and coconut, ending up at the eighth and thirteenth places last year, according to the Central Bank of Sri Lanka (CBSL).

In the fifth to the seventh places and ninth to the twelfth places, respectively, last year were air transport; sea freight and computer services, and, foreign direct investments (FDI), petroleum products; food, beverages and tobacco and machinery and mechanical appliances.

However, according to latest available CBSL data, the COVID-19 Pandemic hit Sri Lanka’s FX earnings virtually across the board, at least in the first five months of the year. 

Nonetheless, by July, some exports showed signs of recovery. Among the top 13 FX earners of last year, recoveries were seen in only four of those led by remittances, Sri Lanka’s single largest FX earner followed by  tea, its fourth largest and rubber and rubber based products , its eighth largest and coconut its thirteenth largest FX earner.

But of Sri Lanka’s balance, top, nine FX earners, from the first 13 of such FX earners, at least seven, namely, garments, the country’s second largest FX earner, tourism, its third largest, air transport, its fifth largest, FDIs, its ninth largest, petroleum products, its tenth largest, food, beverages and tobacco, its twelfth largest and machinery and mechanical appliances, its thirteenth largest respectively, appeared to be still failing, as at July.

Vis-à-vis the remaining top two FX earners, sea freight, Sri Lanka’s sixth largest FX earner last year, for which data is available only up to June, showed this sector  to be still in the doldrums, while data on computer exports for the year were not immediately available.

Therefore, to arrest pressure on the country’s Spartan foreign reserves, Government of Sri Lanka, other than for petroleum and pharmaceutical imports, has imposed exchange controls virtually across the board covering all other imports.

Meanwhile, the garment industry, in an attempt to stultify the impact of lost earnings caused by COVID-19, embarked on face masks exports, a face covering which is said to minimise the spread of COVID-19, targeting first the USA, Sri Lanka’s largest export market led by garments country wise, followed by EU and the UK, which, together, regionally, is Sri Lanka’s biggest export market, again led by garments.

Demand from these two traditional export markets for Sri Lanka, switched to face masks from garments, due to COVID-19.

But Sri Lanka failed to capitalise on this new opportunity.

Sri Lanka Apparel Exporters’ Association (SLAEA) Chairman Rehan Lakhani told this newspaper its failure was because Sri Lanka was unable to withstand global competition.

“Though its export was successful at the initial stages, this success could not be sustained due to competition,” he said.

This was because garment factories not only in Sri Lanka, but across the world, due to the loss of their normal apparel export orders because of COVID-19, switched over to the manufacture and export of face masks in the light of this pandemic, resulting in an over-supply situation to the detriment of the local garment industry, he said. That even led to the cancellation of orders, Lakhani said. 

Garment exports are valued at between US$ 5-5 ½ billion annually, the SLAEA Chairman said. But because of COVID-19 that has killed demand. The industry would end the year with a 30 per cent hit to its top line, he said. At the peak of the pandemic, its top line took a hit of 80 per cent, the SLAEA Chairman added.

Lakhani was unable to give a figure to face masks exports as the Sri Lanka garment industry comprises private companies. He however said that it was uneconomical to venture out into the manufacture of the more sophisticated surgical face masks as expensive machinery had to be imported to execute the same. “COVID-19 is likely to be temporary. So, once the pandemic is controlled, if such machinery is imported, they will then lie idle, resulting in a huge capital loss,” he said.

The ordinary face mask, manufactured in the light of the COVID-19 Pandemic, was made from the apparel industry’s usual machines, now, largely idle, because of slack global demand for apparel, the SLAEA Chairman said.

If, being uncompetitive is a bar to export success, that weakness, needs to be addressed. 

 The ingredients that go to make-up cost of production (CoP),  land, labour and capital, including their related ancillaries like utility charges, which together comprise the sum total of CoP, have to be treated, if that is the reason for Sri Lanka being uncompetitive, not excluding the cost of living and inflation, which, directly and indirectly, also aid a higher CoP.

CEYLON TODAY | Published: 2:00 AM Sep 25 2020

More News